Unitech

It is quite clear now that, after a fairly long bull run, the real
 estate sector in India has begun to show signs of slowing down to a
 more realistic equilibrium rate of growth. The first signs of the
 market slackening were evident in the second half of 2007-08. The
 correction has become more pronounced thereafter. As the Chairman of
 the longest listed real estate developer Company in India, I would fail
 in my fiduciary duty to you if I choose to ignore this trend with
 platitudes.
 
 For many entrepreneurs who entered the business during the boom time,
 real estate was the exciting, adrenaline pumping business in India -
 one that could brook no downturn, where there would always be ever
 increasing pots of gold at the end of the ever shortening rainbow. Your
 Company, which has been around for decades, knew better. All industries
 go through business cycles. And having gone through few times in our
 corporate lifetime, we knew that the good times have to be mixed with
 the difficult ones.
 
 What has this recent downturn done? To my mind, it has separated the
 wheat from the chaff. Those who understand and prepare for the innate
 cyclical nature of this business will succeed. Those who have execution
 excellence will succeed. Those who purchased sufficient land at
 attractive prices will succeed. Those who have enjoyed the trust of
 customers will succeed. Those who kept their powder dry - and didnt
 waste shareholders funds chasing their enlarged dreams - will succeed.
 The years have shown that your Company has all these attributes.
 Therefore, I believe that the downturn will not only bring about a
 period of consolidation in real estate in India, but will also be
 better for the long term interests of the industry and of Unitech.
 
 Let me explain this further.
 
 In the last three decades, both India and Unitech have witnessed and
 overcome different periods of slowdown in real estate markets. A case
 that seems similar to todays phase of consolidation after a few years
 of boom in real estate in India, was the rapid contraction in demand
 witnessed in the mid-1990s after a boom that began with the economic
 reforms in 1991.
 
 With a major difference.
 
 Much of the demand in the early 1990s was created by speculative
 property investors expecting their assets to appreciate in value - an
 irrational exuberance over the short term, without there being a
 sufficiently wide and deep class of actual buyers of property. This is
 the fundamental difference.
 
 In the last five years, India has grown at a compounded annual rate of
 8.8%, and has now recorded three consecutive years of over 9% growth.
 This sustained growth since 2004-05 has completely changed the
 landscape of need based demand in real estate.
 
 Urban income levels have dramatically improved in India, and the middle
 class today has significantly greater buying power than a decade ago.
 This financial muscle coupled with greater international exposure has
 completely transformed individual demands. Middle class Indians today
 have much higher aspiration levels as well as the increased means to
 fulfil these desires.
 
 The overall economic development in India has stimulated demand for
 more and better housing, increase in office space, development of
 modern retail formats, demand for more hotel rooms and the need for
 improved forms of entertainment.
 
 More and more people want to and are willing to pay for space that
 satisfies their specific requirements. The real impetus to growth in
 the real estate sector is now being provided by a significant and
 sustainable increase in the real end-users demand.
 
 To be sure, the speculative investor-driven fizz has disappeared. To
 people like us who have been in the business for long, a market
 correction was bound to happen. This is what we witnessed in 2007-08.
 However, unlike in the mid-1990s, the basic growth in end-user demand
 continues to exist today. Only the speculative froth has been
 eliminated from the market.  Housing affordability improved greatly
 during this period. As per HDFC, Indias leading mortgage company,
 ratio of property value to annual income has come down from 22 in 1995
 to 5 in 2008.
 
 Yes, this also means that competition has started getting much tougher.
 The market balance has tilted significantly towards final user demand.
 Developers now have to always focus on understanding the nuances and
 addressing the specific needs of end-users. Reputed developers, having
 a good track record, are likely to increase their market shares given
 the strong preference of end users to deal with such developers. As I
 said earlier, Unitech has all the attributes to win and further
 differentiate itself from others in these demanding times.  And, as the
 numbers show, we have.
 
 Despite the tough market conditions prevailing in 2007-08, your Company
 has continued to grow both in terms of revenues and in terms of
 profits.
 
 - Income from operations increased by 26% to Rs. 41,404 million -
 resulting in a similar rise in total revenues to Rs.42,801 million in
 2007-08.
 
 - Profits before interest, tax, depreciation and amortisation (PBDIT)
 increased by 23% to Rs.23,687 million; and profits after tax after
 adjusting for minority interests grew by 27.3% to Rs.16,618 million in
 2007-08.
 
 A testimony to our ability to grow in difficult market conditions is
 the steady increase in cash advances, quarter after quarter, throughout
 2007-08. These cash advances, received mainly for residential property,
 have risen from Rs.40,411 million in the final quarter of 2006-07 to
 Rs.71,118 million in the final quarter of 2007-08.
 
 There are several factors that contribute to Unitechs competitive
 business positioning.
 
 First, your Company has a well crafted business strategy. While there
 are several elements to the strategy, most of these can be broadly
 classified as follows:
 
 The continuous focus on creating differentiated products in the market
 place that appeals to the final customer. Your Company has always laid
 emphasis on design, architecture and quality of the product being
 offered to consciously create a value for its brand. It is no surprise
 that the brand Unitech was classified as a super brand by the Super
 Brand India in 2007.
 
 The development of a diverse portfolio of businesses within the real
 estate space that includes housing, office space, retail space,
 hospitality, entertainment and SEZs. We have specific strategic models
 for each of these businesses.
 
 The second differentiator is its large scale of operations. Today, your
 Company is already in the process of constructing and developing around
 10,000 houses in the residential business, and over 21 million square
 feet of office space in the commercial business. Five hotels, few
 retail malls and three amusement parks are also under different phases
 of construction. This development is spread across India. Moreover,
 Unitech has a well developed machinery to execute so many large
 projects. While the internal operations are being further strengthened,
 the Company continues to benefit significantly from economies of scale
 and scope.
 
 Third, Unitech has a large land reserve that can be developed in the
 future. In line with our strategy, most of this land has been acquired
 at relatively lower costs in well identified areas that are expected to
 grow in the future. In 2007-08, your Company has further extended its
 presence across India. Newer land parcels were acquired in National
 Capital Region in north India; in Chennai, Hyderabad, and
 Vishakhapatnam in south India; in Kolkata and Bhubaneswar in east
 India; and in Goa and Mumbai in west India. As of 31 March 2008, the
 Companys total land reserve was around 13.9 thousand acres.
 
 Fourth, we have always used innovative methods to optimally finance our
 projects. The stress has been on maximising value creation with the
 least capital outlay. Unitechs business model focuses on attempting to
 maximise utilisation of its own capital at the stage of highest value
 addition. Subsequently, the Company brings in partners into the system
 who bring their capital and share the risks associated with the
 project. This ability to construct smartly with optimal capital usage
 is a fundamental strength that will drive growth for Unitech at a time
 when there is a severe crunch in capital availability.
 
 At Unitech, we are confident of our abilities, yet not complacent.
 
 We have always recognised the need to have a strong internal
 organisation that can overcome all external challenges. The business
 scope and external environment is changing rapidly and this change
 warrants a further enhancement of the internal systems and processes at
 Unitech.  In 2007-08, we launched a major initiative with globally
 reputed consultants to create best in class processes and systems and
 a robust and nimble organisation structure. In addition, there has been
 considerable emphasis on value engineering. While details of most of
 these are explicitly covered in the chapter on Management Discussion
 and Analysis, there is one aspect of this exercise that I want to
 emphasise here. It is the leadership development programme.
 
 Unitech has always taken pride in being a professional organisation - a
 rare exception in the real estate sector. However, we strongly believe
 that in the rapidly changing business environment, businesses require a
 much more professionalised decision making process that cuts through
 different levels of the organisation. Thus, a leadership development
 programme has been developed to identify and develop professionals who
 will have a much higher degree of empowerment and take ownership of
 growing the Company. I believe that the success of this programme will
 be very important for us to embark on the next journey of accelerated
 growth.
 
 Clearly, Unitech remains primarily a real estate company. However, it
 continues to thrive on its spirit of well directed and calibrated
 entrepreneurship. It is not averse to entering businesses that offer an
 exciting opportunity for growth. Hence, your Companys telecom venture.
 
 In 2007-08, the Government of India provided an opportunity for new
 players interested in entering the telecom business by offering new
 licenses. It is with a sense of pride that I report to you the fact
 that we successfully applied for a pan-India license and was allotted
 Unified Access Services Licenses (UASL) for all 22 telecom circles
 across India.
 
 While there are some synergies with real estate, the telecom business
 is new to Unitech. Your Company, therefore, intends to get a partner
 who primarily brings in cutting edge technology and industry expertise,
 and jointly develop the project. As with real estate projects, Unitech
 is focusing on developing this business to create maximum value with
 optimal allocation of capital. This business is in a very nascent
 stage. A separate team is being built to develop and run this business.
 Taking global cues and seeing the growing demand in India, I am
 convinced of your Companys ability to successfully establish this
 business.
 
 Though seemingly difficult, these are exciting times and I am quietly
 confident of the future of Unitech. I strongly believe in Indias
 growth story. I also believe that the present fears of inflation and
 hardening interest rate are short term phenomena, which will not stymie
 growth in the long run.
 
 I would like to take this opportunity to thank all those who work for
 or are associated with Unitech for their efforts in 2007-08. The next
 year will be more challenging. But I know that our people will be able
 to roll up their sleeves and win yet again.
 
 Finally, I would like to thank you - our shareholders - for your
 continued support.
 
 Wishing you the very best for 2008-09.
                                                        Ramesh Chandra
                                                        Chairman